Dysfunctional Competition, the Knowing-Doing Gap, and Sears Holdings

A compelling and instructive story on Sears Holdings appeared in BusinessWeek last month -- they own Sears stores, Kmart, Land's End and a host of other brands such as Craftsman tools, Kenmore appliances, and DieHard batteries. It is written by Mina Kimes and provides a textbook example of how, when people in a company are pitted against each other -- rather than pressed and paid to support the greater good -- that cooperation evaporates. People treat insiders (rather than outsiders) as enemies. And even when they know what needs to be done for the effectiveness of the organization as a whole, they often don't do it -- because helping others (or contributing to the greater good) undermines their income, stature, and job security.

Jeff Pfeffer and I wrote about this disease in some detail in The Knowing Doing Gap in 2000 and in related articles and posts based on the book, for example, here, here, and here. It has been over a decade since we focused on this problem, but if anything, it has become worse in many companies -- as the Sears story shows. Kimes' detailed article provides many examples of the problems caused by the Sears structure and incentives, where CEO Eddie Lampert has split the company into some 30 warring units, each with "its own president, chief marketing officer, board
of directors, and, most important, its own profit-and-loss statement."

Lampert defends this structure as "decentralized," but that confuses a structure where individual units have autonomy to act largely as the please with one where there is no incentive (or worse, a disincentive) to support the company's overall performance. Google, for example, is quite decentralized, but there have always been both cultural and financial pressures to do what is best for the company as a whole. Even within the famously competitive and decentralized General Electric, there have been incentives for cooperation for decades and selfish "cowboys" who don't support colleagues and the culture have been banished from the company.

In contrast, let's take a rather astounding example from the Sears story:

"At the beginning of 2010, Lampert hired 20-year Wal-Mart Stores veteran Jim Haworth to run Sears and Kmart stores as president of
retail services. Haworth, an affable, mustachioed Midwesterner, saw
immediately that Kmart’s food and drugs were more expensive than those
at Walmart and Target.
So he met with a few top executives, including Chief Financial Officer
Mike Collins and operations chief Scott Freidheim, to look into
discounting goods such as milk and soda.

That summer the group
asked the company’s internal research team to study the idea, according
to eight former executives. The researchers came back with a proposal:
Cut prices at several dozen Kmarts across the country, bringing the cost
of items to within 5 percent of Walmart’s. The business unit presidents
agreed. But when Haworth’s group tried to get them to cough up
$2 million to fund the project, no one was willing to sacrifice business
operating profits to increase traffic."

The reason, according to the story, that no President was willing to cough up any funds was that cutting into their businesses operating profit would, in turn, reduce their bonuses. The parent company refused to fund the effort as well and the key executives involved in pressing for the proposal are no longer with Sears. In short, it is a nearly perfect example of how -- even though everyone knows the right thing to do for the collective good -- no one does it because they live in zero-sum, I win and you lose, world. As the article shows, this mindset can create some mighty ugly scenes:

"The bloodiest battles took place in the marketing meetings, where
different units sent their CMOs to fight for space in the weekly
circular. These sessions would often degenerate into screaming matches.
Marketing chiefs would argue to the point of exhaustion. The result,
former executives say, was a “Frankenstein” circular with incoherent
product combinations (think screwdrivers being advertised next to
lingerie)."

This me me me mindset might work in situations where there is no need for collaboration, information sharing, or even pooled resources. But it doesn't work when people and units depend on each other to succeed.

I also want to emphasize -- despite some suggestion from Lampert and others that cooperation is a form of evil socialism -- that many companies have cultures and incentives that generate both competition and collaboration simultaneously (to name five widely varied organizations, McKinsey, IDEO, General Electric, Procter & Gamble, and the Men's Wearhouse all accomplish this one way or another). The trick is that star employees are defined (and trained, groomed, rewarded, and led) as those who do high quality individual work (or, for more senior people, lead top performing teams or businesses) AND who help colleagues (on their team, on different teams, and in different businesses) succeeded as well. If you don't do both consistently, you aren't a star. In such places, the competitive pressures to HELP others and the
ORGANIZATION are palpable: People compete against each other by trying
to be MORE collaborative than their colleagues. Its like a weird Jedi mind trick, but it works beautifully when done well.

While I am no fan of forced rankings (I don't believe that every organization must be doomed to have 10% to 20% defective employees, for example), when people are evaluated, or even ranked, on this dual standard, organizations perform far better than when have you a situation such as at Sears where "As the business unit leaders pursued individual profits, rivalries
broke out. Former executives say they began to bring laptops with screen
protectors to meetings so their colleagues couldn’t see what they were
doing."

In short, when I want to know if an organization rewards or punishes cooperation, the diagnostic question I ask is "Who are the superstars around here? Are they the selfish people who stomp on others on the way to the top? Or are they the people who do great work AND who use what they know to lend a helping hand to others?"

P.S. The recent structural changes at Microsoft -- long infamous for its nasty internal competition -- provide an interesting counterpoint. They are not only becoming more centralized and streamlined ala Apple, as The New York Timesreports "The goal is to get thousands of employees to collaborate more closely,
to avoid some duplication and, as a result, to build their products to
work more harmoniously together." Microsoft has a long history and ingrained habits to overcome, but this strikes me as a step in the right direction.

Comments

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I have worked in corporations where senior leadership has implemented the "internal competition" mindset. It was horrible. The learned behavior by lower-level leaders is like cancer - almost impossible to eradicate without firing a lot of people. The energy dissipated in internal fighting and one-upmanship is utterly amazing and leaves you mouthing "WTF?" more times than you can remember.

Laptops with screen protectors at meetings with colleagues... I've only seen that once before, and that company was in a tailspin, unable to compete with the worst companies in its industry while harboring vicious battles for scraps. Definitely puts Sears' performance in perspective.